YANGZIJIANG SHIPBUILDING: "Maintain Add, TP S$1.91," says CIMB

Excerpts from CGS-CIMB report

Analyst: Lim Siew Khee

Yangzijiang Shipbuilding

Quiet confidence ■ YZJ adopted its first 3Q21 business update with no briefing. 3Q21 revenue was Rmb4.4bn while GP was Rmb1bn at 20%/22% of our FY21F. ■ 9M21 revenue of Rmb11bn and GP of Rmb11bn made up 50%/58% of our FY21F. Expect stronger pick-up in 4Q21F from easing power and Changbo. ■ Shipbuilding related GM of 14.8% was higher than our 13.8% thanks to qoq improvement in core shipbuilding as well as higher shipping charter rates. Yangzijiang  Share price:  $1.33 Target:  $1.91 ■ Debt securities balance fell sharply by 35% qoq to Rmb10.91bn. Default risk was contained with provision write-back of Rmb191m in P&L. ■ Exposure to real estate in debt securities reduced to 26% in 9M21 (1H21: 41%). Catalyst: clarity of listing of debt securities. Maintain Add, TP S$1.91.

Expect 4Q21F revenue to pick up
3Q21 shipbuilding revenue w as Rmb3.69bn (+25% qoq, +45% yoy) w ith 15 vessels delivered (2Q21: 11 vessels). We cut our FY21F revenue by 24% to reflect the progress of 9M21 but this is offset by higher gains and provision write-back in debt to securities.

YZJ said the China power crunch led to electricity rationing and production halts at some factories in Sep-Oct, but the impact on its shipyards were under control.

Currently, electricity usage constraints have eased and YZJ’s major shipyards are operating at full capacity. The group delivered a total of 38 vessels in 9M21 and w e think it can hit 55 vessels by end-21 with the resumption of the Changbo yard in Jul 21.

The yard has the capacity to deliver 8 mid-sized vessels p.a. Pre-Covid in 2019, YZJ delivered 59 vessels. Changbo’s capacity is 8 medium sized vessels p.a. and has launched its first vessel YTD.

Stronger shipping GM and higher gains from higher 2nd hand sales
3Q21 group GP was Rmb1bn (+10% qoq, -30% yoy) and 9M21 GP was Rmb11bn or 62% of our FY21F.

Core shipbuilding GM was 13.2%, up from 12.8% in 2Q21. Overall GM of 14.8% was higher than our 13.8% for FY21F, thanks to shipping & others divisions clocking in a GM of 43% (1H: 31%) due to higher charter rates and expanded fleet size (25 units in 3Q21 vs. 23 units in 2Q21).

There was also a vessel gain of c.Rmb40m for the sale of a 82k dw t bulk carrier vs. Rmb25m recognized for a similar vessel sold. . Strong shipping market has led to an uptrend higher secondhand prices (Fig 6).

Full report here.